Create a DIY Pension

You’ve been saving diligently for retirement. How do you turn that money into a stable—and worry-free—source of support?

Jean Chatzky

Photograph: Gary Taxali

One important note: When you buy longevity insurance or any annuity, always look for an insurer with a top-tier credit rating (A or better) from AM Best (ambest.com/ratings) or Standard & Poor’s (standardandpoors​.com/ratings/en/us). After all, says Evensky, “this is a company you’re counting on to be around for another 30-plus years.”

REVERSE MORTGAGE

What if you (or your aging parents) are running out of money? If you own a home, you might consider taking out a reverse mortgage. This allows people age 62 or older to turn their home equity into a lump-sum payment or a pensionlike income stream that lasts as long as they live in the home. FYI: If housing values fall significantly, the loss is swallowed by the lender; it takes the hit, not you.

Historically, some experts have not recommended reverse mortgages because they’ve been so pricey. But that changed last year, thanks to a new push on a program from the Federal Housing Administration. The program, called the Home Equity Conversion Mortgage Saver, greatly reduces the typical $15,000 to $20,000 in transaction fees and 1.25 percent in annual insurance on the loan; some lenders are waiving one or both. AARP has great information on this: Go to aarp​.org, then type “reverse mortgage” into the search box.

Reverse mortgages have gotten attractive enough that even experts are keeping the option open for themselves. “My wife and I think we have enough in our accounts to cover us for the rest of our lives,” says Zvi Bodie, a finance professor at Boston University. “But if it came down to running out of money and the choice was to move in with our kids or borrow out the equity in our home, I would choose the latter.” And so would I.